“Ireland's public debt is clearly unsustainable,“ Portes writes. "The projections contained in the International Monetary Fund's bailout program see gross debt peaking in 2013, at 120% of GDP.“

He says the government has doneit s best but it is not enough.“The government has already made heroic discretionary cuts since 2008, but the further turnaround required by the IMF is more self-sacrificing still”

Portes believes Ireland must renegotiate and restructure.

”The right policy is to restructure the debt, negotiating haircuts that would reduce its present value. A reasonable target, one in line with current market expectations, would be to cut the present value of the debt by €40-50 billion, or some 30% of GDP. That would bring the debt ratio down to a more sustainable 80% or so.”

He says European Central Bank objections to this should be overruled. “According to the (Irish) minister of finance, the ECB has told Ireland it can't restructure this debt.

“Where in the world can the central bank tell the government what it can or cannot do in fiscal matters?

What authority does the ECB have to do this? Ministers ask who will pay for Irish teachers and nurses if Europe calls back its loans. But Europe is not so foolish. The costs to the ECB and member states would far exceed the benefits of cutting off Ireland. And even if foreign financing were completely withdrawn, the current account deficit is only 2%, so adjustment should not be too difficult.”
Porter says the downside can be dealt with.

“The potential downside to renegotiating Ireland's debt is tolerable—certainly no worse than the alternatives.

A well-managed restructuring is not likely to bring about the worst of what skeptics have predicted: trade sanctions, long-term loss of market access, a significant increase in borrowing costs. The overall damage to Ireland's reputation as a debtor should likewise be modest: The country did not get into its present situation because of fiscal profligacy.”

He also says there is a moral obligation on creditors of Irish banks to pay up.

“But there is also a moral argument for forcing losses upon creditors who invested in now-failed Irish banks. Europe's governments have been in effect bailing out their own banks and then transferring the costs to Irish taxpayers via rescue loans.

“For Irish taxpayers to foot the bill for German and French banks' misguided lending exceeds the bounds of national economic responsibility—not to mention creating the conditions of moral hazard under which these bad loan decisions may be made again in the future.”